30 June 2021
OFFSHORE INVESTMENT SUPPLEMENT
Does an emissions scandal await the real estate sector? The property sector must agree on a coordinated approach to environmental standards if it is to reduce its carbon footprint. BY TOM WALKER Co-Head: Global Real Estate Securities, Schroders
What has the VW scandal got to do with the real estate sector? Firstly, much like the car industry, the real estate sector has one of the highest carbon footprints of any sector. It currently contributes 30% of global annual greenhouse gas (GHG) emissions and consumes around 40% of the world’s energy, according to the UN Environmental Programme. Secondly, the real estate sector does not seem to be regulating its emissions or pathway to net zero carbon (NZC) in any co-ordinated fashion. There is a danger that participants are relying on lazy metrics that are easy to achieve and will lead to no real reduction in GHG emissions. Analysing real estate companies from around the world, investing in many different types of real estate, means we are well-placed to identify hollow promises made by industry participants. Why are the sector’s green credentials problematic? The industry’s focus is almost exclusively on ‘operational’ carbon rather than on the ‘embodied’ carbon. This is a short-sighted and controversial methodology. Operational carbon comes from the daily usage of a building, from actions such as heating, lighting and cooling. This is different to the embodied carbon, which is the emissions created in the process of manufacturing materials required to construct the building. The key components of any development are concrete and steel, both of which produce significant carbon emissions.
BY GLYN OWEN Investment Director, Momentum Global Investment Management
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n September 2015, news broke that Volkswagen (VW) had been selling cars in the US that had a so-called ‘defeat device’ that could detect when they were being tested and change performance to improve results. Modifying an environmental test and masquerading as ‘doing the right thing’ will obviously have no meaningful impact on the environment. You would expect that everyone would have learnt lessons from the car industry’s shameful episode. However, it is possible to identify another industry that is attempting to self-regulate its environmental standards in a bid for green bragging rights. And that industry is real estate.
The best time to invest globally
It is therefore nonsensical that a building can claim to be ‘green’ or net zero carbon (NZC) when it ignores the environmental cost of building the asset. A building cannot be truly net zero until it has paid back or offset its initial carbon debt (the embodied carbon) and has also considered what happens to the building at the end of its life. The key issue for the real estate sector is that there is no widely adopted market mechanism that aims to reduce embedded emissions. On the contrary, by focusing on operational energy consumption, the owners of many buildings are not even aware that new construction is contributing to the climate crisis instead of helping.
“The real estate sector has one of the highest carbon footprints of any sector” How can the real estate sector prevent its own emission scandal? The major impediment to success is the lack of agreement within the sector as to which sustainable metrics to focus on. As you would expect, there are vested interests that can make for difficult discussions. In addition to the focus on operational carbon, there must also be a ‘whole life cycle carbon’ assessment for new developments, something that regulators in the Netherlands have forced on developers since 2013. The sector must move forward together, only then will significant progress be made. From being the focus of controversy in 2015, the car industry is now becoming a case study for reducing GHG emissions. For the real estate sector, the direction of travel is clear: act together to enact positive change before it is too late.
14 www.moneymarketing.co.za
South African-based investor who restricts investments solely to domestic stocks is leaving behind approximately 99.6% of equity opportunities. The SA economy represents 0.4% of global GDP, and the stock market is a similar proportion of the global equity investment opportunity set. These stark statistics highlight the incentives of investing offshore. The SA market is one of the most concentrated: almost 30% of the market capitalisation is represented by just two stocks, and 50% by only five. Add to that the diversification benefits of investing in economies growing sustainably more quickly, in currencies that offer the prospect of long-term strength against the rand, in industries that are largely unavailable domestically, as well as in the world’s established and emerging growth stocks, and the case for global diversification becomes compelling. Fortunately for South Africans, regulations have been progressively eased, and there are increasingly efficient means of investing offshore, with a range of solutions to meet the wide range of risk preferences and objectives of retail investors, as well as investment platforms that remove the administrative burden.
“There are widely available solutions packaged simply and cost-effectively to enable SA-based investors to invest offshore immediately” Momentum Wealth International (MWI) is one such platform. As a truly offshore business with roots in Guernsey, MWI offers a myriad of benefits for clients wishing to invest offshore, including effective estate planning, tax reduction for higher-net-wealth clients, investor protection, multiple currency reporting and, importantly, investment choice and flexibility. With a broader investment opportunity set being available offshore, the ability to access various unit trust funds, exchange traded funds (ETFs) and personal share portfolios in multiple foreign currencies is a clear benefit of the platform. Against this background, a common question is: When is the best time to invest globally? Timing the entry point for investing is always difficult, and very few investors can demonstrate consistent success in doing so. ‘Time in the market almost always beats timing the market’ is never more relevant than when considering offshore investing. In the long term, international equities are more likely to deliver real growth in inflation-adjusted terms, as well as diversification across a wide range of currencies, economies, markets and industries, while companies will offer investors a much smoother, more reliable, and more rewarding journey to achieve their goals than investing solely in a narrow domestic market. It’s also no longer the case that the administrative burdens of investing offshore, alongside the ‘misery of choice’ (how do I begin to make selection decisions?), are a deterrent; there are widely available solutions packaged simply and cost-effectively to enable SA-based investors to invest offshore immediately. Our Momentum Global Managed Solutions fund range, as an example, takes the ‘guesswork’ out of navigating the investment choice as it includes three well-diversified, multi-asset-class funds that cater for a variety of risk appetites and time horizons. Investing globally should be for the long term. Whatever your starting point, careful selection, diversification and patience is likely to be rewarded, and will ensure your clients’ personal goals are met. The best time to invest globally might well have been twenty years ago, but the second-best time might be now. The information in this editorial is for general information purposes and not intended to be an invitation to invest, professional advice or financial services under the Financial Advisory and Intermediary Services Act, 2002. Neither Momentum Global Investment Management nor Momentum Wealth International, make any express or implied warranty about the accuracy of the information herein. Momentum Global Investment Management Ltd (FSP 13494) is an authorised financial services provider. Momentum Wealth International Ltd (FSP 13495) is an authorised financial services provider.
